OST-00-7513 / US-Ecuador All-Cargo / Reply of Gemini Air Cargo / June 30, 2000

OF GEMINI AIR CARGO, INC.

Gemini Air Cargo hereby replies to the Answers filed in the above proceeding by Atlas, Evergreen, Fine, and Arrow. The Gemini proposal to operate scheduled all-cargo service to Ecuador twice weekly with Gemini DC-10-30F aircraft continues to be markedly superior to the proposals of the other four applicants. Nothing in any of the Answers provide any valid reason why the Department should not grant Gemini an exemption to provide scheduled all-cargo service to Ecuador and to allocate to Gemini the three narrow-body frequencies necessary to operate its twice weekly service. /1

1. Gemini's twice weekly service with DC-10-30F aircraft is superior to the once weekly 747 service that Atlas and Evergreen would be able to operate.

The Atlas and Evergreen Answers do nothing to overcome the deficiencies associated with their proposals to operate to Ecuador using 747 aircraft. One weekly 747 flight-to Ecuador would use two of the three available narrow-body frequencies and would leave one frequency either unused or

1/ The Gemini service proposal attached as Exhibit A to the Gemini Application inadvertently indicated that Gemini would operate three flights per week instead of two. The two flights that Gemini will operate will depart Miami for Quito and Guayaquil on Tuesdays and Thursdays and arrive back in Miami the next day.

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used in an inefficient manner. Their proposals would not provide the best service possible under the parameters established by the U.S.-Ecuador Aviation Agreement ("the Agreement").

The Agreement only allots a specified number of weekly frequencies for U.S. all-cargo service. There is no provision that allows U.S. carriers to carry unused frequencies forward to subsequent weeks. Atlas nonetheless advanced the creative argument (subsequently adopted by Evergreen) that a 747 operator could fully utilize the three weekly narrow-body frequencies by carrying one unused frequency forward from one week to the next in order to permit two 747 flights in the second week.

That argument, however, receives scant attention in the Atlas and Evergreen Answers, suggesting that Atlas and Evergreen no longer consider it to be a vital element of their proposals. Atlas did not mention the point in its Answer. Evergreen references it but also suggests that if the carry-forward is not permitted, the Department could give the leftover frequency to one of the incumbent carriers, a result that does not enhance the competitive use of all three frequencies. Evergreen Answer, p. 3 n.4. In any event, alternating the number of flights operated each week

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is hardly an ideal way to operate and promote scheduled cargo service in a market.

The Atlas and Evergreen Answers emphasize the allegedly superior capacity of their 747 aircraft in comparison to the DC-10 aircraft operated by Gemini. The fact is, however, that the capacity offered by Gemini's twice weekly DC-10 flights will substantially exceed that of one 747 flight by either Atlas or Evergreen. Even if Atlas and Evergreen were able to operate the alternating flight pattern that they propose, capacity alone should not be determinative in the frequency reallocation when one considers the substantial drawbacks associated with the irregular service pattern that it would take to offer that capacity.

Furthermore, the Atlas argument regarding capacity conveniently neglects to consider the fact that its Ecuador service would operate via Bogota in both directions. Even under the best case scenario, the amount of cargo capacity that Atlas would offer in the U.S.-Ecuador market would be substantially less than that which Gemini would offer.

Because none of the other four applicants are able to refute the obvious advantages of the Gemini proposal, they instead suggest that Gemini is not sufficiently experienced in Latin America, an argument that is patently without any basis. Since its first operations in 1996, Gemini has grown

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to operate a fleet of 13 DC-10-30F/MD-11F aircraft. Three of those aircraft, or 23% of its fleet, are based in Miami, and another DC-10-30F will be delivered this fall and will also be available to support the Ecuador service. Latin American operations therefore represent a substantial portion of Gemini's services and reflect the company's commitment to that part of the world. Gemini first operated to Latin American (to Colombia) in 1996 pursuant to its initial arrangement with Sun Country and later operated to Colombia in its own right in 1997. As noted in its Application, Gemini already has an established presence in Ecuador through its operation of U.S.-Ecuador charter flights. Whether Atlas has operated more charter flights to Ecuador is irrelevant in light of Gemini's demonstrated ability to operate the scheduled service that it has proposed.

Evergreen also argues, as does Fine, that Gemini is somehow less qualified or equipped to operate scheduled service to Colombia because of an alleged Gemini focus on ACMI service. While Gemini does operate ACMI service, it also operates extensive scheduled and traditional charter service. Gemini currently operates scheduled all-cargo service from-New York and Los Angeles to Seoul, Korea, with service beyond Seoul to Taipei, Taiwan twice a week. Gemini

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operates scheduled service New York - Brussels - New York five times a week. Gemini operates New York/Cincinnati -East Midlands (EMA), United Kingdom - New York five times a week. Furthermore, Gemini anticipates receiving approval very shortly from the Hong Kong authorities authorizing Gemini to operate scheduled all-cargo service three times a week between Hong Kong and New York, Chicago, and Los Angeles. Gemini plans to introduce that service on July 16, 2000.

Scheduled service makes up a substantial and growing portion of Gemini's operations, and it is untenable for Evergreen, or Fine, or anyone else, to suggest that Gemini lacks the experience to operate scheduled service.

The question before the Department is which of the applicant carriers is best able to operate scheduled allcargo service between the United States and Ecuador. The answer is Gemini. Gemini has the best service proposal. Gemini has the resources and experience to execute and sustain that proposal, and Gemini plans to introduce that service at the earliest possible date.

2. Reallocation of the three available narrow-body frequencies to either Arrow or Fine would not enhance, and would in fact decrease, competition in the U.S.- Ecuador scheduled all-cargo market.

Arrow and Fine argue that their proposals to use the available frequencies to operate three additional narrow-

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body flights per week are preferable to the two weekly DC-10 flights that Gemini would operate. /2 They argue that shippers prefer more frequent service with narrow-body aircraft rather than less frequent service with larger aircraft.

First, the advantage, if any, that the Fines and Arrow proposals have due solely to the number of flights to be operated is marginal at best, especially in comparison to the major disadvantages of reallocating the three available frequencies to either Fine or Arrow.

Fine would have five frequencies (its current two plus the three at issue) if the Department granted its reallocation application, but Fine compares "apples and oranges" when it compares the capacity it could offer with five flights to that which would be available on Gemini's two flights. (Consolidated Answer of Fine, pp. 3-4) Using Fine's figures, the weekly payload capacity that Fine could offer on three additional narrow-body flights would be 411,000 pounds, only modestly more than the 360,000 pounds for the two Gemini flights.

2/ Arrow and Fine are under joint ownership and plan to merge, subject to DOT approval. Gemini refers to the two carriers Jointly as "Arrow/Fine," except where the reference is to one of the two carriers individually.

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Most importantly, however, it is not in the public interest to unduly concentrate the allocation of the fifteen available U.S. scheduled all-cargo frequencies. Arrow and Fine are both incumbent carriers in the market, holding five frequencies between them at present. If the Department granted the reallocation application of either Arrow or Fine, the Arrow/Fine combination would have eight of the fifteen frequencies, and Challenge/UPS would still have the seven that it already has. As Gemini has already argued in its Answer, such a reallocation would not be in the public interest because it would not promote competition in the U.S.-Ecuador scheduled all-cargo market.

The anticompetitive effect of such a reallocation is particularly striking when one considers that the Department has previously distributed the fifteen frequencies among four U.S. carriers - Arrow, Fine, Challenge, and AIA/Kitty Hawk. The common ownership and possible merger of Arrow and Fine eliminates competition between those two carriers, and reallocation of the AIA/Kitty Hawk frequencies at issue to Arrow/Fine would leave only two carriers in the market. Furthermore, the acquisition of Challenge by UPS indicates that Challenge/UPS frequencies to Ecuador will be used to develop UPS small package services. This would leave only

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Arrow/Fine to provide air transportation of general cargo between the United States and Ecuador.

Lastly, as others have pointed out, the financial posture of Fine Air Services Corporation, the parent company of Arrow and Fine Air Services, Inc., is not good. Its ability to continue its present level of operations is highly questionable. Its ability to undertake and sustain new operations, such as new operations to Ecuador, is even more questionable.

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The scheduled all-cargo service that Gemini proposes to operate to Ecuador is superior to the proposals set forth by Atlas, Evergreen, Arrow, and Fine, and Gemini is fully qualified and ready to perform that service. It is therefore in the public interest for the Department (1) to grant Gemini Air Cargo, Inc. an exemption from 49 U.S.C. 41102 to authorize it to provide scheduled foreign air transportation of property and mail between Miami, Florida, on the one hand-, and Quito and Guayaquil, Ecuador, on the other; (2) to allocate to Gemini three weekly frequencies to Ecuador; and (3) to integrate this exemption with existing certificate and exemption authority held by Gemini.

Respectfully submitted,

Moffett B. Roller

ROLLER & BAUER, PLLC

1020 Nineteenth Street, N.W.

Suite 400

Washington, D.C. 20036

Phone: (202) 331-3300

Fax: (202) 331-3322

Attorneys for Gemini Air Cargo, Inc.

June 27, 2000